The FT's interview with Eric Schmidt: Google not buying a newspaper, thoughts on business models

Posted by Emma Heald on May 22, 2009 at 10:41 AM

Google CEO and chairman Eric Schmidt has told the Financial Times that the company had considered buying a newspaper or supporting news businesses seeking non-profit status but that it is now unlikely to pursue either option. Speculation that Google might consider such a purchase has been rife for some time, and a feeling has emerged among some publishers that Google has a sense of duty towards newspapers, as its Google News product is entirely dependent on newspaper content.

Schmidt explained to the FT, however, that having looked into the possibility, the search engine was "trying to avoid crossing the line" between technology and content: "we have done well by letting content people do content in their own terms and in their own way." Google has concluded that any potential acquisition targets were too expensive or carried excessive liabilities.

With regards to any interest in the New York Times, Schmidt would not comment. Google was offered the 20 % stake in the company that is currently held by hedge fund Harbinger Capital Partners: the stake which billionaire David Geffen was reportedly after. Schmidt did comment that Geffen would be an "excellent owner," but added that he did not know "what David is up to."

What Google is doing to help

Google is working with the Washington Post and other newspapers to improve their websites, he said, specifically to make the sites "work better" for online advertising. Although he did not cite any specific products, Schmidt mentioned that he thinks that "the newspaper that I read online should remember what I read" and "it should allow me to go deeper into the stories." He was clear that the company intends to share any progress it makes with other newspapers also: "if we come up with a great product in this area we'll make it generally available."

Business models: paid online content or non-profit?

With regards to paid online content, Schmidt believes that it is only a solution for specialised content. In the area of general news, even if it is high quality, he said it is "highly unlikely" that people will be prepared to pay extra "because there are so many free versions." It is a concept that has been gathering speed recently, with News Corp's announcement that it intends to charge on all its newspaper websites within a year, and the creation of Journalism Online, which intends to facilitate online payment.

When asked for his thoughts on the non-profit model, Schmidt explained his belief that "news gathering and the profitability model was always an uncomfortable relationship" and the structure of newspapers that has evolved, with large untargeted ads, was "ultimately destined to be challenged by technology and that's indeed what has happened." However, when it comes down to practicalities, he said that the difficulty would be how to make the transition between for-profit and non-profit without some "very generous" help. The idea of sheltering newspapers in non-profit structures had been suggested to the foundation Google.org but Schmidt said "they are unlikely to happen without some massive, massive set of corporate bankruptcies."

On Google News

Schmidt also explained the logic behind not sharing more ad revenue with newspapers, even though Google News consists entirely of content from news organisations. "We've decided that the value we provide to the partners is the traffic," he asserted, adding that in the current model, "the vast majority of the revenue that comes directly from reading newspapers, in fact, goes to them through all these mechanisms." He pointed out that Google is not monetising the news "in aggregate" so if it shared revenue with newspapers it would be taking money largely from other areas and "just paying them, which doesn't seem like a good sustainable model for anybody." He admitted that Google was in need of high-quality newspaper content, but rather than subsidising it, believes a solution is "to build products that really are so good that we make enough money from advertising and subscriptions" so as to pay for the production of such content.

Google has had a complex, often controversial relationship with newspaper publishers for some time, exacerbated by the recent economic crisis which has hit already slowing advertising revenues. Suggesting that the company has any kind of obligation to purchase a newspaper is extreme, but it makes sense for Google to help newspapers improve their technological offerings as their websites' continued success is mutually beneficial.

Source: Financial Times - article and interview